Offsetting unpaid taxes

[scotti]

I recently had a letter from HMRC concerning my 2008/2009 self assessment tax return, specifically relating to my two rented properties. One of those properties became vacant for the first time in about 20 years and I needed to spend a significant amount of money on it so my repairing costs went through the roof (which HMRC has now asked me to justify - not a problem in itself). However, prior to submitting my return i wanted to enquire as to whether I could offset those costs against my tax liability for the same year - I had never had a loss before so wasnt sure how to handle it; i read the notes and even acknowledged that this is only allowable in very specific circumstances but was still not sure, I phoned HMRC and received advice that i could indeed offset those costs against my income tax bill for the current year.

It now appears that this advice was wrong (as reliably informed by the officer looking into my tax return) and i have to carry those losses forward to the next year under the property section; I have been advised that there will be tax, penalties and interest to pay. I feel slightly aggrieved about this given that although the website is clear in the inspector's mind, I (being unclear) sought advice from the horses mouth only to be poorly advised. Can I contest the penalties and interest?

Also, had I been correctly advised at the time, I had sufficient funds to pay the additional tax there and then but having taken a real bashing over the last financial year I no longer have those funds and to be honest it is going to cause me difficulties in shelling out approximately £2500. The 2009/2010 results will not make good reading and whilst I may not make a loss I wont use up my tax free allowance. Am I allowed to offset the remainder of my tax free allowance against the tax owed or could i only do that if I posted a loss?

Finally, is there an element of bargaining allowed in this process along the lines of making an offer to pay half immediately in full and final settlement rather than dragging out the payment via instalments? I have heard of people owing incredible sums of money to HMRC and negotiating ridiculous terms for payment but perhaps my debt isnt sufficiently large to warrant any negotiation on the part of HMRC!

Would appreciate your comments.

Many thanks

[mullet]

A loss on property income cannot usually be set against other income of the same year - it must be carried forward against future property profits. If you received incorrect advice from HMRC (and can prove it), then seeking advice would hopefully be treated as "taking reasonable care". An error "despite taking reasonable care" does not attract a monetary penalty.

You can argue about penalties (both whether one is charged and, if so, the amount) but you cannot contest the interest - there is no right of appeal against interest. It is charged when people pay late - simple as that - with no real notice taken of the reason for late payment. The bottom line is that you have had the money and HMRC has been denied that same money.

Am I allowed to offset the remainder of my tax free allowance against the tax owed or could i only do that if I posted a loss?

I don't understand the question. Your personal allowance is used against taxable income; there is no direct link with a tax liability. Are you saying that you owe £2,500 and if you had £1,000 unused personal allowance could the bill be reduced to £1,500? If that is your question, the answer is "no".

Offering half in full and final settlement will be a non-starter. The tax and interest are almost certainly non-negotiable. Assuming that you have ongoing income and some assets, then HMRC will expect you to pay in full, somehow, eventually. Getting away with paying half is a "man down the pub" story. Or perhaps Vodafone if the rumours are to be believed? It might happen occasionally, but maybe only where it's a "that or nothing" scenario.